Publicis-Omnicom Deal Sees Levy Oust Adland King Sorrell

Maurice Levy, chief executive officer of Publicis Groupe SA, left, and John Wren, chief executive officer of Omnicom Group Inc., exchange pens while signing the merger during a news conference held on the rooftop of the Publicis headquarters in Paris on July 28, 2013. Photographer: Balint Porneczi/Bloomberg

July 29 (Bloomberg) -- The transatlantic tie-up of Publicis
Groupe SA and Omnicom Group Inc. pushes the reigning king of
adland, WPP Plc’s Martin Sorrell, into a spot he hasn’t been in
in over four years: runner-up.

Publicis Chief Executive Officer Maurice Levy and Omnicom
CEO John Wren toasted the unveiling of Publicis Omnicom Group
with Ruinart champagne atop Publicis’s Paris headquarters
yesterday, celebrating a merger due to unseat London-based WPP
and its 68-year-old founder Sorrell, widely seen as the face and
mouth of the industry.

“What will WPP say in a world where they’re not the
biggest? A version of Omnicom agency DDB’s line: When you’re
only No. 2, you try harder?” said Nick Jefferson, managing
director at marketing and advertising company Gyro London.
Sorrell “has worked hard to become the ‘go-to guy’ for
advertisers, and for anyone who wants to know how advertisers
are thinking and -- crucially -- spending.”

WPP has been the biggest ad company since its 2008
acquisition of Taylor Nelson Sofres Plc. Yesterday’s
announcement, billed as a “merger of equals” by third-ranked
Publicis and No. 2 Omnicom, ushered in a behemoth with a market
value of $35 billion and left competitors and analysts alike
questioning both its logic and what the future will look like
with Sorrell’s long-time nemesis Levy atop the heap.

Market Beliefs

Publicis shares rose 0.1 percent at 59.40 euros in Paris,
while Omnicom fell 0.6 percent to $64.75 at the close in New
York. WPP shares gained in London, rising as much as 4.8
percent, and closed up 0.6 percent at 1,182 pence.

Levy, appearing with Wren in a Bloomberg TV interview today
with Tom Keene, pointed to the share jump the companies had.
“This is showing clearly the market is believing in a further
consolidation and they believe this is something that’s going to
happen,” he said.

It’s “a merger of unequals,” Sorrell said, as New York-based Omnicom’s 2012 revenue came to $14.2 billion while
Publicis brought in $8.8 billion in sales. “The last merger of
equals we had, I think, was DaimlerChrysler, which did not go
too well to put it mildly.”

In the nine years after Daimler-Benz AG bought Chrysler in
1998 to create a global carmaker, DaimlerChrysler lost $12.6
billion in market value.

Torch Bearer

Sorrell has become known for more than his ad operations,
espousing theories on economics and politics at the World
Economic Forum in Davos, Switzerland, and coining phrases like
“bathtub-shaped” economic recoveries, “dead-cat bounce” for
company growth, and “gray swans,” which foreshadow trouble.

He was knighted in 2000 and carried the Olympic flame at
last year’s games in London for a stretch. Sorrell takes his
role as leader of today’s “Mad Men” seriously and is a regular
on-air guest on Bloomberg TV and CNBC, and opines in the press
on everything from fashion and dining to taxes on the wealthy.
WPP earnings statements include pages-long forecasts on the
economy, opinions on world politics and detailed breakdowns on
the ad industry.

Sorrell “applied to be the CFO,” Levy joked in the
Bloomberg TV interview. “If Sir Martin had nothing bad to say
then in that case, I’d start thinking, ‘What’s wrong with our
organization,” he said.

Sorrell’s Legacy

“Sorrell is going to be forced to think about what this
deal means and how it could affect the legacy he wants to leave
behind,” said Claudio Aspesi, a media analyst at Sanford C.
Bernstein in London. “Though he could go out and buy a large ad
agency, I think he’s more complex and since he’s a fan of data,
we could see him go for another market researcher or a Google-like company on a smaller scale.”

Yesterday Levy and Wren, who will serve as co-CEOs for 30
months after which Levy will become chairman, hugged, finished
each other’s sentences, and after their presentation, celebrated
with champagne, as Levy said they didn’t have rice to throw “to
celebrate this wedding.”

The two men “get along very well,” Levy said, adding “we
agreed within 30 seconds” every time they discussed the deal,
expected to be completed by the first quarter of 2014.

Client Conflicts

First they have to sort out clients and get regulators to
agree. Publicis has a large portfolio of digital assets
including Digitas, LBi International and Razorfish, as well as
agencies in emerging markets. Omnicom’s strength lies in the
U.S. Competing accounts -- Publicis counts Coca-Cola Co. on its
roster and Omnicom PepsiCo Inc. -- and overlaps including
McDonald’s Corp. and Procter & Gamble Co. need to be resolved.

“Marketers may not like this, but as long as there is some
threshold of managing services issues, such as transferring
executives from competing accounts internally and not sharing
data, most advertisers are accepting,” said Brian Wieser, a
media analyst at Pivotal Research Group LLC in New York.

Other competitors said they’re also planning how to take
advantage of the new situation and questioning the logic.

“Digital and technology have made scale irrelevant,”
Havas SA CEO David Jones said in an e-mail. “That’s not a good
thing for either Omnicom or Publicis but it is a good thing for
their competitors -- the first thing we’ll be doing Monday is
getting out both their client lists and going through the senior
talent.”

‘Loyal Warrior’

Sorrell is one of the ad industry’s biggest consolidators
with past purchases such as Young & Rubicam in 2000 and the Grey
ad agency in 2005. He joined WPP when it was still a British
shopping-basket manufacturer known as Wire and Plastic Products,
and began buying ad companies.

Levy, 71, joined Publicis in 1971 as the IT director a year
after it went public and has helmed the company since 1975. He
became heir apparent after running into the burning headquarters
to save computer records, prompting founder Marcel Bleustein-Blanchet to call him “my loyal warrior.”

Alex DeGroote, an analyst at Panmure Gordon & Co., said
Sorrell may not go without a fight. “I wouldn’t be surprised if
he tried to disturb this somehow,” DeGroote said.

Sorrell and Levy have traded barbs over the years, poking
fun at profit margins and their companies’ relationships with
Google Inc. Sorrell has often hinted that Publicis should merge
with the No. 4 advertising company, Interpublic Group of Cos.

“This must come as one of the biggest surprises of all
time for the sector,” said Keith Hunt, managing partner at
Results International, which advises on mergers. “You can bet a
lot of people at the top of both networks will be feeling
massively unsettled hearing this news over a summer weekend.”

Sorrell got one more dig in today, noting how the code name
for the deal, “Color,” which represented orange for Publicis
and purple for Omnicom, creates a muddy brown or gray color when
mixed together.